Stock of the week - Tesla (21.10.2021)

• Tesla reported Q3 2021 earnings

• Record sales and record profits

• Supply chains issues hit output

• Analysts boost price targets

• Tesla share price used to gain after quarterly earnings releases

Tesla (TSLA.US) traded lower in the after-market session following the release of the Q3 2021 earnings report. This can come as a surprise as results released by the US electric vehicle manufacturer were really good. Nevertheless, stock continues to close to it's all-time highs in the $900 area and a move to fresh records cannot be ruled out in the coming days given how volatile Tesla's shares tend to be. Let's take a closer look at Q3 results from the company. 

Record sales and record profits

Tesla reported earnings for Q3 2021 yesterday after the close of the Wall Street session. Revenue in the third quarter of the year reached $13.76 billion - more or less at the midpoint of the estimate range compiled by Bloomberg ($11.71-15.89 billion). Adjusted EPS increased from $0.76 in Q3 2020 to €1.86 in Q3 2021 (estimate range: $1.04-2.10). Net income stood at $1.658 billion. Both sales and earnings during the third quarter of 2021 were record high for Tesla. What's even more important is that Tesla managed to increase sales during the quarter (+56.8% YoY). Meanwhile, other carmakers that have already reported earnings showed lower sales due to semiconductor shortages and resulting production halts. Impairment related to bitcoin investments was recorded at $51 million in Q3 2021. However, it should be noted that Bitcoin surged over 60% since end-Q3 therefore it should not be too worrying.

Supply chain issues hit output

While Tesla managed to increase sales during the quarter, revenue could have been even higher if it wasn't for supply-chain issues that plague the global economy. Tesla said that due to shortages of semiconductors as well as backups at ports, it had limited ability to boost output and meet demand for EVs. Nevertheless, the company still managed to deliver a record number of cars during the quarter - 241,300 units. While Tesla struggled to boost output, it has managed to boost profitability with the automotive segment gross margin widening from 27.7% in Q3 2020 to 30.5% now. Company continued to invest heavily with CapEx of $1.82 billion this quarter, up from 81% YoY. Tesla is setting up new factories in Texas and Germany and ramps up production at its factory in Shanghai. Production of Model Y is expected to begin in Texas and German plants before the end of the year. As production capacity will increase significantly, output may spike once chip shortages are finally resolved.

Analysts are happy with Q3 earnings and unhappy with share price

Analysts at major financial institutions saw the latest quarterly report from Tesla as solid and decided to boost recommendations for the stock:

• Wells Fargo boosted price target from $660 to $860

• Cowen & Co boosted price target from $580 to $625

• RBC boosted price target from $755 to $800

• Credit Suisse boosted price target from $800 to $830

• Canaccord Genuity boosted price target from $940 to $1,040

While price target boosts are generally positive, it should be noted that apart from Canaccord, all the other new price targets are below current market price, suggesting that analysts still see the stock as overvalued. Lower valuations are somewhat justified as Tesla warned that ongoing supply-chain issues are likely to pressure margins in the coming quarters.

While analysts decided to boost the price target recommendation for Tesla following earnings release, median target compiled by Bloomberg is still almost 20% lower than current market price. Source: Bloomberg

Tesla (TSLA.US) still has not fully recovered from early-year declines. Stock caught a bid in May and started to trade within an upward channel. Topside resistance of the channel was breached earlier at the end of a previous week. However, a break above the upper limit failed to trigger a bigger upward move - stock halted advance this week and current pre-market quotes point to a slightly lower opening of today's session. Sentiment towards the company is positive and strong therefore a move to fresh all-time highs above $900 area cannot be ruled out in the coming days. Tesla shares have a track record of moving higher following quarterly releases. Average share price gain a day after earnings releases stands at 7.13%. Average move one week after earnings release is 9.73% while average move one month after release is 13.12%. Averages are based on post-release price performance since Q4 2010 earnings release.

Source: xStation5